For several decades, the products to make and the markets to serve have been the bedrock of all strategic plans. Strategic decisions of integration and diversification have, for long, been triggered or supported by individual product-market decisions. Four megatrends have, of late, been queering the pitch for simplistic product-market analysis, and conventional strategic planning. These are: enhanced level of competition marked by expanding number of entrants, rapidly saturating markets, exponentially evolving technologies and increasing desire of customers for differentiation. These four megatrends have rendered conventional methods of strategic planning, and functional cascading of strategies inefficient and ineffective, relative to the futuristic competitive requirements. This is mainly because of the structural rigidity and financial conservatism that drive most strategic planning processes, despite the desire of the firms to practice game changing theorems.
The conventional strategic planning is, in many ways, dictated by the state of a firm’s evolution in terms of the maturity and competitiveness of its core functions, and the visionary drive in the apex and functional leadership. More often than not, however, individual functional brilliance cannot by itself drive strategic brilliance in terms of handling the megatrends. It verily requires a corporate culture which always looks for the first opportunity to proactively raise barriers to entry, the next boundary to expand the markets, the likely future of technological innovation and the eagerness to serve its customers in a differentiated manner. These four capabilities together are the new competencies required of a firm to successfully ride the megatrends. As with everything, actions of the individual firms that are aimed at managing the megatrends constitute also the industry maturity, dictating in turn newer strategic actions to handle the megatrends more successfully.
The conventional strategist made his strategic choices on two fundamental parameters of obsolescence and innovation; both of these typically being the same side of the coin. An essential question for the new age strategist is whether the concept of obsolescence exists any longer. The question may appear counterintuitive but is very relevant given that the fundamental ways in which most products serve their customers have not changed. For example, a pen continues to be a writing instrument to capture one’s thoughts, a suitcase continues to be the travel companion to hold personal effects, a house continues to be a dwelling unit to provide shelter, an automobile continues to be a mover of people and cargo, a boiler continues to generate steam and a television continues to broadcast images. There can be scores of such examples that establish that nothing has indeed changed in fundamental product drivers. On the other hand, several products that are expected to become obsolete have made a strong comeback, be it a radio, watch or camera, each of which continues to fulfill the original purpose of invention.
One way to address the apparent enigma is to postulate that products may become obsolete but human needs will never. As long as a human being is governed by the five fundamental sensory attributes (see, hear, touch, taste and smell, that trigger human experiences) and certain gross and fine motor skills (such as movement and coordination that need to be enhanced or utilized) all product development will continue to cater to these fundamental human attributes and skills, satisfying as well as leveraging them in an increasing measure. As new technologies get developed and integrated into product design and manufacture, the way the products fulfill the human needs becomes more evolved. At an extreme, new technologies would mimic the fundamental human attributes and skills to achieve certain fundamental shift in the manner how humans would put their faculties to use. Pilotless planes, driverless cars, robotic surgical knives, and completely automated factories are some examples.
Working from the previous postulate, the follow-up question is whether the industry boundaries are changing or whether the product specifications are getting merely upgraded or expanded, all the while seeking to meet the established needs individually or in combinations. The answer to the question is a clear positive, whichever way the product-need combinations are analyzed. A watch whose goal at one time was merely to provide current time through mechanical movements has undergone tremendous change in specifications to include battery and solar drives, dual and multiple time zones, and chronograph and compass to achieve enhanced functionality. With newer materials and precious metals incorporated, the watch has also moved from being a functional accessory to becoming an accessory of esteem and prestige. Similar analysis can be made of any product which, while fulfilling several of the previously individualized needs in contemporary combinations, have also become lifestyle statements of human, business or industrial life.
It would appear, therefore, that a concept of ‘specification envelope’ is a well- validated hypothesis of what drives industry evolution and corporate strategy. The more are the technologies integrated in a product the more would be the customer needs that can be catered to in combination. The larger the specification envelope of a product or a firm, the greater would be the capability to serve the customers better (both in terms of sharpness and diversity), the ability to deepen and expand markets and, as a consequence, drive up scale and scope of the business for a firm. There is one pitfall, however, in assuming that determination of the right specification envelope (many times assumed to be simply a larger envelope) would be a surrogate for the right industry to operate in. This is because consumer needs are no longer fulfilled as a point of use; these are fulfilled as part of a systemic transformation of the paradigm of need fulfillment for better consumer satisfaction on one hand and better business efficiency on the other.
The typical firm is now required to take the concept of specification envelope as a given essential. The firm, however, is also required to constantly redefine the industry in which the firm should seek to operate. This strategic decision is larger than the strategic decision of product upgradation, market segmentation or market aggregation, typically addressed by the specification envelope concept. This strategic decision is also larger than the strategic decision of which businesses to operate in and how to operate, typically addressed by integration or diversification analysis. Rather, the question is whether the strategist would need to be constrained (or empowered) by his or hers firm’s functional or cultural thought processes so much so that he or she fails (or, succeeds) to recognize the megatrends. The answer to this lies in the firm viewing need fulfillment as an ecosystem phenomenon rather than as a customer-firm transaction. Megatrends, typically, overwhelm the firms when they spread across a social, industrial or economic system. The conventional view of strategy that it should be confined within the well-defined boundary of the industry needs to be challenged at least annually by the chief executive officers, functional leaders and strategic heads.
It is quite possible that multiple firms could view the same industry from different perspectives. Becton Dickinson (BD), the world leader in syringes, needles and insulin pen micro needles has thought it fit to remain as a component and an accessories player for injectable drugs, more so for specialized and increasingly popular insulin pens. BD has never thought it appropriate to move into the sourcing, manufacture or marketing of insulins. On the other hand, Novo Nordisk (NN), the world leader in injectable insulin drugs has thought it appropriate to have its own insulin pens and needles. Neither BD nor NN has deemed it appropriate to be in the business of diabetes diagnosis or blood sugar measurement devices, which is left to the likes of Johnson & Johnson (J&J). In the context of the topic of industry definition being discussed in this blog post, the issue is not how the industry to operate is defined by firms. In this case, the industry to operate in is defined in three different ways by the three leading firms, although anchored around in one area of diabetes management. The submission of this blog post is that such industry definitions miss the megatrend that could be emerging in total diabetes management, from genetic marking and stem cell treatment to day to day diabetes diagnosis and management by all ways that are possible. As a start, the phrase ‘industry boundary’ would need to be replaced by the phrase ‘industry frontier’.
Once the human needs are viewed from a systemic perspective, it becomes easy to appreciate that the traditional industry boundaries are resultants of tunnel vision and structured strategies laboring under the constraints of past capabilities. On the other hand, a systemic view unleashes the imagination to seek new frontiers of industry, and eventually an industry and a business that are unbounded. The current wave of integrating computing devices, communication devices, cloud storage, cloud computing, application development and social networking is a vivid example of how several industries hitherto seen to be different are brought under one mega industry of seamless computing, connectivity, communication, entertainment and socialization. From education to employment, many others also get added to the paradigm. As a result of taking such an approach, Apple has been able to gain distinct competitive lead in the journey of unbounded business. And, a few others including Microsoft are seeking to share such competitive lead. In this journey of unbounded business, what were once supportive or unrelated technologies tend to become related, and even core technologies as firms move forward on their “business unbounded” mission.
The potential for the concept of business unbounded is simply enormous. A seemingly worrisome threat of saturated market can be converted into unbounded business potentialities by firms. For example, L&T which is a construction giant of India executing all types of infrastructural projects, from highways to metro rails, and from residential townships to industrial parks can discover unbounded business through an innovative goal of building integrated intelligent cities of the future. In the ultimate analysis, all mega corporations would have only one goal – that of serving life. It is no wonder, therefore, that Toyota sees as much future in building intelligent and ecologically friendly homes as in maintaining its global leadership in automobiles, the latter increasingly through environmentally friendly electric and hybrid vehicles. Similarly, Samsung could be foreseeing a merger of all of its electronic device and chip technologies with healthcare, among others, leading to an apparently surprising foray by the firm into biologic drugs. While all firms may not be able to pursue exotic frontiers dedicated to total life management, virtually all firms can discover huge untapped potentialities in the domains and markets they serve by opting to drive for specification envelopes than getting limited by specification updates, and more fundamentally by seeking to pursue broader industry frontiers than getting constrained by established industry boundaries.
Posted by Dr CB Rao on July 15, 2012